Stock Stuff

Last week I did a "thinking" out loud on Bill Cara's blog about the SLM deal private equity deal. Specifically, with the amount of debt that had to be raised, the waning appetite for bond investors for high risk without higher compensation (meaning that the costs would escalate) it would not be surprising to see this as a failed merger.

Yesterday's news (Flowers' stating that current gov't legislation may derail the deal) brings some confirmation of that out-loud musing. Every now and again I have an idea that pans out. I own FMD--I'm long the stock and I have some SEP $45 calls. I bought those calls with the profit on my $40 calls. So, I'll call it "free money". Basically, it allows me to leave it alone an play out my thesis which is as follows: FMD would (1) be bought out by a larger bank who wanted to add FMD's product to their overall loan portfolio; and/or (2) something would happen in the SLM deal. In fact, just last week, upon writing my on-line musing on BC's site, I was looking at buying some puts on SLM, but decided that they were too expensive.

Personally, I think that the buyers are using the congressional proposed legislation as a red-herring. That legislation has been a known quantity. I think that the buyers are caught in a deadly bond sandwich (a pooh-pooh sandwich!). Bread Slice 1: The bonds that they have to sell to fund the buyout are likely going to be expensive and/or investors' appetite has waned for such. Bread Slice 2: the bonds already issued (to fund the loans) are going to get more expensive with downgrades. Neither slices are bread are palatable. Both are being pooh-poohed by investors.

I also have to wonder if the bond holders for already issued debt for securitizations have some sort of recourse. I'm not expert, and I've not read any underlying docs to possess an informed opinion. But in general, when you issue debt instruments, the debtor has obligation to not do "stuff" that would harm bond holders. Accordingly, you have to wonder if the very act of selling out to private equity and potentially impairing the interest of the bondholders could possible prompt some sort of suit. I may have to see if I can find some information on this.

I sold my WZEN. The stock may be consolidating, but I cashed out. I bought some DEPO on their crash. I bought it at $2.00 and flipped it for $2.31 the next day--a 15.5% gain for 24 hours. It actually went as high a 2.47, but I was happy with the gain. My account is now at $15,379. I broke the $15K barrier!

RTK had some odd activity--run up--toward the end of the trading day. It will be interesting to see what caused it. I didn't see any news.

BAS, my oil services holding is being quite stinky. But I like this company and I'm going to hang in there. The 6.5% loss, though, is an oucher. But, I'm going to ignore it. This is a well run, high quality company.

The Financial Times reports about credit derivatives, and I'm lifting a quote which I found disturbing:

JPMorgan observed that swings in derivatives prices were so extreme they implied “scenarios in which the core of the global liquidity system suffers a serious assault”. But it stressed “the meltdown in the credit indices seem completely at odds” with trends in the real economy, implying it should be reversed.

If you'd like for me to e-mail you the FT article, you can e-mail me at leisa-va@cox.net